Having thus reviewed the theory of clearing and the relations between correspondent banks, it may be worth while to sketch briefly the technic of clearing as developed in the United States to-day. It has been noted in an earlier part of the chapter that there exist in the United States large numbers of clearing houses situated at various points. These clearing houses have no relation with one another, but they are independent units. In a general way they are organized as non-incorporated associations, and their function consists of offsetting checks and drafts against one another, arranging for mutual examination and generally exercising a common supervision over the member banks of the organization. The technic of clearing is comparatively simple and has been outlined in its application to the city department by Mr. Jerome Thralls, formerly secretary of the Clearing House Section of the American Bankers' Association, as follows:

Each member maintains in its office a department known as its clearing-house department, and to which are charged by the several departments all items drawn on or payable at the offices of the other members. These items are usually recorded in the department where they originate and on reaching the clearing-house department are inspected as to signature, dates, etc., and are indorsed with a rubber stamp, showing the name and clearing-house number of the clearing bank and the date of clearing. They are next sorted - all items drawn on or payable at the office of each member being placed in a separate pile. When the sorting is completed and the clearing hour approaches, each pile of checks is taken to an adding machine and a list thereof is made and a total is taken. The items are then done up into packages, the list covering each package being placed on its face, and the clearing-house numbers of the members on which the items are to be cleared are marked on the respective packages with pen or pencil. The lists on the packages are indorsed with the regular clearing-house indorsement stamp. The packages are then sealed or bound up with rubber bands.

Each member is supplied by the clearing house with statement blanks which are in duplicate form and which show at the top the name and number of the member using the same. The blanks used in different places are not uniform. . . .

Along the left margin of each statement appear, in regular order, the names and numbers of all the members. Immediately to the right of these names and numbers are several columns, the two principal ones of which are headed "On Clearing House" and "From Clearing House." The total shown on each package of items is entered in the column "On Clearing House" and directly opposite the name and number of the bank on which the items are to be cleared. When all totals have been entered, the statement is footed, and if the work has been correctly done the footings thus obtained will prove against the combined total of all charges made by the several departments to the clearing-house department. Assuming they do so prove, the packages are placed in a satchel or chest and the clearing-house clerk and messenger take the satchel or chest and statement and make a mad rush to the clearing house. The reason for this rush is that the clearing hour is fixed, and any member not represented on the dot is fined; and if tardy over a certain number of minutes the member is shut out of the clearing for the day.

The exchange room at the clearing house is equipped with a cage or desk for each member, and a manager's desk. The cages are usually arranged in parallel rows and in numerical order with reference to the numbers of the members. On arrival at the clearing house the clerks enter their respective cages and the messengers pass around and deposit their packages of items - package No. 1 being deposited in cage No. 1, package No. 2 in cage No. 2, and so on down the line. When all clerks and messengers have arrived at the clearing house and all deposits have been made, each clerk has on his desk a package of items from each member, and he enters on his statement in the column headed "From Clearing House" and opposite the respective names and numbers of the members the amount shown on the package received from each. The packages when thus entered are dropped into a receptacle, from which they are taken by the messengers, who rush back to the banks so that the items may be quickly distributed to the bookkeepers, who pass upon the genuineness of signatures, etc., all items being cleared subject to being returned at a certain hour if found not good for any reason. Each clerk foots his statement when all totals have been entered, and if he finds he brought a greater volume to the clearing house than he received from the members he carries his "From Clearing House" footings to his "On Clearing House" column and makes his deductions, showing the amount due his bank from the clearing house, or his credit balance, as it is termed. Should the amount received at the clearing house exceed the amount brought to the clearing house, the operation would be the reverse, and he would show the amount due the clearing house, or his debit balance. A duplicate of each statement is passed to the manager, who enters on the clearing-house records the net debit and credit balances and the "On Clearing House" and "From Clearing House" totals. He then foots the balances and if they prove the clerks are dismissed and return to their respective banks. The statements are filed as a record of the transactions between the several members, and the manager foots the "On" and "From" Clearing House columns; and if they agree it is conclusive evidence that the work has been correctly done. The "On Clearing House" column represents the items brought to the clearing house and are the figures that are reported in the newspapers and financial journals as the bank clearings. Where an average of $10,000,000 worth of items are cleared daily the resulting balances run about $600,000; so by the operation the amount of cash necessary to handle $10,-000,000 worth of business is reduced from $10,000,000 to $600,000.

The next step is the settlement of balances. One plan is for the manager to draw checks against the debtor members in favor of the creditor members; the first check being drawn against the largest debtor, in favor of the smallest creditor, the second in favor of the second small creditor, and so on down the line until all the creditors have been satisfied. These manager's checks are payable in cash and generally must be settled at or before 2 o'clock p.m. of the day on which drawn. In case of failure to collect any such check at or before the specified hour, all members other than the one against whom the check is drawn are released from responsibility thereon. To simplify the payment of these checks a clearing-house gold depository is usually maintained, in which members deposit gold of required weight and United States gold certificates, in lieu of which are issued clearing-house gold certificates in amounts of five and ten thousand dollars. These certificates pass current among the members, the holders thereof being the owners of the gold and United States gold certificates so deposited and which count as legal reserve. In settling balances of $600,000 it is necessary to use only sixty ten-thousand-dollar gold certificates. This plan saves abrasion on the gold as well as the labor of carrying it back and forth and recounting it. It also eliminates the danger of street robberies.

The manner of settling clearing-house balances, and the forms used, vary slightly. In some cities the debtor banks pay the cash to the manager of the clearing house, and he in turn pays it to the creditor banks; while in other cities the creditor banks present the clearinghouse manager's settlement checks to the debtor banks direct for payment. In some cities, in order to avoid congestion of work and to head off check kiting, informal exchanges are made by the members. Receipts are taken to cover items so exchanged and are passed through the clearing house at the next regular exchange. Trading of balances is also in vogue in some cities, and since the inauguration of the Federal Reserve system many balances are settled by checks on Federal Reserve banks. To encourage promptness, care and accuracy on the part of clerks, fines are imposed for errors in lists, wrong clearings, missing indorsements, errors in statements, misconduct, etc. These fines range from ten cents to five dollars, and are assessed against banks whose representatives are the offenders. The proceeds usually go toward defraying the general expenses of the association. To get an idea of the convenience and saving that result from the daily exchanges at the clearing house one need only to consider the number of clerks that would be required to go from bank to bank and collect and handle the actual cash represented by $10,000,000 worth of items, then compare that process with the clearing of a like amount of items and the settlement of balances resulting therefrom.

In addition to the function of city clearings there is, as has already been noted, in quite a number of clearing houses to-day, a country department whose function is essentially that of collection. In principle the work of the country department differs from that of the city chiefly in the fact that deferred rather than immediate debit and credit is given.